A case study shows how today's typical tariffs can force some industrial electric customers to subsidize others.
There ought to be a better way for electric utilities to set prices for ancillary services - so that customers pay rates that fairly reflect the needs they impose on the bulk power system. However, while federal officials seem to agree with this point, so far they have done little to turn the idea to action.
Last spring, in its notice of proposed rulemaking on regional transmission organizations (RTOs), the Federal Energy Regulatory Commission appeared to encourage innovative pricing for ancillary services. At that time it wrote, "The Commission believes that, whenever it is economically feasible, it is important for the RTO to provide accurate price signals that reflect the costs of supplying ancillary services to particular customers."[Fn.1]
Several years earlier, in Order 888, the FERC had warned against the simple solution of charging for ancillary services through transmission rates: "Because customers that take similar amounts of transmission service may require different amounts of some ancillary services, bundling these services with basic transmission service would result in some customers having to take and pay for more or less of an ancillary service than they use. For these reasons, the Commission concludes that the six required ancillary services should not be bundled with transmission service."[Fn.2]
Nevertheless, in spite of the FERC's fine words, almost all utilities today charge for ancillary services on the basis of customer demand (in megawatts) or energy (in megawatt-hours). Likewise, the existing and proposed independent system operators use billing determinants that have little or nothing to do with the services being provided.